MALTA: SOLVING THE BREXIT CONUNDRUM.

With the triggering of Article 50 on 29th March 2017, the long-held concerns of many UK businesses and firms, especially those located within the City of London, have been brought into sharper focus as senior management weigh up the possible effects that Brexit may have on the functioning of such companies, with particular relevance to the likely effect on access to the Single Market and the ability to ‘passport’ services and products throughout the EU Member States.

With the triggering of Article 50 on 29th March 2017, the long-held concerns of many UK businesses and firms, especially those located within the City of London, have been brought into sharper focus as senior management weigh up the possible effects that Brexit may have on the functioning of such companies, with particular relevance to the likely effect on access to the Single Market and the ability to ‘passport’ services and products throughout the EU Member States.

Many such companies have already started to prepare for such effects through continuity planning and structural reviews, such as the relocation of offices and manpower outside of the UK, and looking at various mechanisms to ensure that passporting rights are maintained.

Malta is in a strong position to alleviate UK-based companies’ concerns regarding the prospect of Brexit affecting their trade and investment, since Malta, as a jurisdiction, offers a genuinely practical alternative base.

With access to the Single Market restricted in post-Brexit Britain, along with the nullifying of accompanying UK-EU specific agreements, such as the passporting rights granted by the EU, the UK will be akin to a third country for financial services regulatory purposes. As such, there is a real risk that UK-based companies shall be unable to maintain their present and existing operations in Europe, as many of the privileges, currently enjoyed though the UK’s membership of the European Union, could be stripped.

The Financial Conduct Authority – being the conduct regulator for 56,000 financial services firms and financial markets in the UK – provides data proving that over 8,000 companies authorised in other European states use passporting rules to conduct their business in the UK; and circa 5,500 UK companies use the corporate passporting system to operate across Europe.

EU passports are the legal mechanism that makes it viable for financial services companies based and regulated in one country of the EU (or the broader European Economic Area (EEA)), and authorised under one of the EU’s single market directives, to freely establish themselves in another EEA State and seamlessly carry out permitted activities in the latter EEA State, by circumventing any authorisation and legal requirements in the host EEA State. This policy is based on the principle of mutual recognition and the single passport. The activities can either be carried out through a branch in the host member state (the right of establishment) or on a cross-border service basis without using an establishment in the host state (a services passport).

The impact which Brexit shall have on such a large number of companies will undeniably have a ripple effect worldwide. With the recent triggering of Article 50 of the Lisbon Treaty, the formal process for the UK leaving the EU has begun, with the UK having two years to negotiate a new relationship with the EU.

Therefore, it is clearly prudent for affected companies to evaluate their options and find an alternative route through which to conduct their business. This is especially important considering the time-frame for Brexit, with negotiations between the UK and the EU on a new agreement that would regulate relations between the parties likely to be lengthy, with it having been suggested that such negotiations shall be delayed until after the negotiations on the ‘divorce’ have first been concluded. It has been said that Brexit will undeniably have political implications that are going to be more serious than the economic ones. As stated by John McFarlane, Chairman of Barclays Bank and TheCityUK, seeing as Britain’s changing relationship with the EU is of critical importance, “the new terms of trade will be of fundamental importance” “to the long-term attractiveness of the UK” and to the UK’s industries.

Notwithstanding this, with astute planning and a good strategy in preparation for Brexit, UK-licensed companies, banks and funds should find this transition to be manageable.

Malta’s stable financial services sector is certainly a promising option, as it would be possible for UK companies to enjoy the advantages associated in retaining their UK operations whilst creating a ‘lean mirror’ operation offering free access in Europe through the establishment of a Malta-based centre of operations.

Malta offers various advantages to individuals and companies looking for a secure and stable entry point into the European Market. Malta’s financial services sector is the backbone of the country’s economy, as this small – yet resourceful – archipelago offers exactly what these companies need when exercising their right to provide services and establish themselves in another EU country. As a full EU Member, Malta has transposed all applicable EU directives into its domestic law, particularly in relation to the financial services sector, covering such areas as Funds, Investment Services, Pensions etc.

Having English as an official language as well as the principal language for international business; a prime information and communications technology infrastructure; the perfect climate; being strategically located in the middle of the Mediterranean between Europe and Africa and situated in the Schengen area, are just a few of the various advantages of operating in/from Malta. Malta also proudly boasts of its highly-qualified, well-trained and motivated workforce and its low-cost environment.

Malta is growing year-on-year as a financial centre of excellence, with the fund industry being one of the financial centre’s main engines for growth. Malta hosts over 580 investment funds which have a combined net asset value of almost Euro 9.7 billion. The country is a welcoming place for high-net-worth individuals due to its mixture of innovative products, experienced professionals and strong regulatory framework. It offers all the regularly sought investment vehicles available to wealthy clients, while allowing investors to protect their assets.

The jurisdiction is a centre of excellence for the asset management industry and an attractive base from both a cost and a tax efficiency perspective. In fact, Malta has witnessed an increasing number of third-party service providers offering services such as administration, management and investment advisory services. Malta is a signatory to over 70 double-taxation treaties, covering most of the world’s high-growth markets, thus facilitating international business.

Investors in Malta can also take advantage of a pro-active and business efficient climate, evidenced by the flexible and effective regulator and tax refund system, in which to structure their businesses. Companies are chargeable to tax in Malta at a rate of 35%. However, the application of the participation exemption, full imputation system and refund system typically result in an effective Malta tax rate of approximately 0% -5%.

It has been suggested that Malta’s relationship with Britain shall never sour due to Malta’s unique relationship with Britain which goes far beyond EU agreements, through the former relationship as a British colony, as well as through continued proud membership of the Commonwealth of Nations. Professor Scicluna, Malta’s Finance Minister, has opined that due to the continuous business relationship which Malta has enjoyed with the UK and their “strong historical ties”, Malta shall always be there to provide help and support for Britain where such help is needed and it will undoubtedly seek to ensure the best possible Brexit deal for both the EU and the UK.

With Brexit now at hand, Malta’s safe and stable business environment should be viewed as the UK’s first choice for post-Brexit structuring, since it provides arguably the most viable solution to many of companies currently in limbo, who are looking to relocate, invest or trade in Europe whilst facing the Brexit dilemma.

This article has been prepared for general guidance only and does not constitute professional advice. You should not act upon the information contained in this article without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy and completeness of the information contained in this article and the firm does not accept any liability and disclaims all responsibility for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this memorandum or for any decision based on it.